5 Ways to Fund Your Business

A major challenge in starting a business is figuring out how to fund it. From your nest egg to courting investors, what are the options to finance your business?

When your business idea is no longer just a plan, it needs funding to come to life. There are a lot of one-time costs and recurring expenses involved in running a business, and having the money to take care of those will fast-track growth and profitability. Upgrading machinery, renting more space to increase production, advertising, business insurance, raw material to fulfil a big order – businesses experience a number of known and unexpected expenses that they have to be ready for.

As an entrepreneur, do you find yourself asking: How can I raise funds for my business? Ownr has put together a list of five (of the many!) financing options that are available to a business in Canada.

Use Personal Savings to Start a Business

Most entrepreneurs fund their business from their own pocket in the initial years. It’s readily available, you have 100% control over how you manage the business, and you’re not indebted to anyone.

Using your personal capital also teaches you to be scrappy. The limited resources force you to be lean and mindful of spending on only required items, or in areas that improves sales or wins business . After the initial investment of your own savings, you can then rely on reinvesting the profits back into the business to keep it growing.

Personal money invested in a business is treated as your equity. So, if you decide in the future to source external funding, a lender or investor will see your investment as a commitment from you that you really believe in the business.

Consider the risks associated with going all in with your personal savings. If something goes wrong, how will the loss of that money affect you? Was it your retirement fund? Did you sell an important asset that you hoped to recover? Are you emptying your emergency fund?

When you’re investing your own money into the business, put it in a separate business bank account. This is important because at tax time, you can show a separation between your personal spend and business expenditure, and claim a tax deduction wherever applicable.

Register or incorporate a business with Ownr, and get money back when you open an RBC business bank account within 60 days. For sole proprietorship registration get all your money back, and for incorporation, get $100 plus applicable tax back. Learn more about the RBC refund offer here.

Borrow Money to Invest In Your Business

Ask Family and Friends for a Loan

Entrepreneurs often borrow money from friends and family to fund their business. It’s an attractive option because you can draw a repayment deal that’s comfortable to both parties. But to avoid damaging your relationship over money, follow a few basic rules when you’re borrowing from your inner circle of friends and relatives.

Basic rules for borrowing from friends and family

  • Make a formal pitch that explains why it’s a good idea to invest in your business, what problem you’re solving, and your mission.

  • Provide a business plan, projecting how much you expect to make in sales based on market research. Earn their confidence by showing them how you can repay them.

  • Make them understand the risks involved in investing in your business and how you plan to manage repaying them if things don’t go as planned.

  • Sign a formal agreement that speaks about the rate and schedule of repayment, and if they get a share in the business for their investment.

  • Provide regular updates on what you’re doing with their money, and how the business is developing.

Apply to a Bank for a Loan

Canadian banks will often loan a business money for purposes of financing its expansion, purchasing new assets, selling or acquiring a business, or financing working capital for its day-to-day operations. There are generally four types of bank loans available to a business.

Personal Loan

The bank loans to you and not your business, and the security or collateral that you provide as your repayment guarantee is drawn from your personal assets, for example residential real estate.

This is a type of loan that lets you access funds on an ongoing basis up to a pre-set credit limit. You pay interest on what you borrow, pay it back and can borrow from it again as long as you have available credit. You don’t need to re-apply unlike other types of loans. Personal lines of credit are easy to set up and fast to access, making them convenient for unexpected expenses and gaps in your cash-flow. But be careful when using them for business expenses, because your personal credit score is at risk if you overspend and are unable to pay it back.

Business Line of Credit

This option lets you borrow money up to a pre-approved amount, and you pay interest only on the portion you use. As a business the collateral you offer is your inventory, proof of purchase orders, real estate.

Term Business Loan

Business loans enable you to achieve big goals for your business, buy long-term assets or make expensive investments. You can use them to modernize equipment, purchase property, open in new locations, hire more staff or make improvements to the business to continue growing. You pay back the loan in regular instalments (usually monthly), helping you adjust your cash flow. The rate at which you repay the loan is either fixed or variable. The repayment period is also fixed, usually in years. Working Capital Loan

This loan finances a business’ daily or short-term operational needs, like rent or staff salary. Businesses, whose sales vary seasonally, may face a shortage of cash on hand. A Working Capital Loan helps them tide them over the lean periods.

When you’re shopping for a loan, consider the duration for which it’s being offered, the percentage being financed, flexibility of repayment, loan collateral, and of course the rate of interest.

Government Programs and Grants

The federal government runs various loan programs to fund businesses in specific industries and communities. From financial support for Aboriginal businesses, loans of up to $65,000 to women entrepreneurs in British Columbia, to loans of up to $250,000 to new or existing businesses in rural Ontario, the government covers the length and breadth of the country in providing financial support to upcoming businesses. Find financing help for your business and check the eligibility criteria on the Government of Canada portal.

  • Canada Small Business Financing Program (CSBFP) is another government-sponsored program that offers loans of up to a maximum of $1 million to start or grow a company, or to help established businesses with a big investment. Purchase or improvement of equipment, including business vehicles, and for renovations to leased property by a tenant, loans are capped at $350,000.

The CSBFP is offered by banks, credit unions, and other financial institutions, and you’re eligible if you operate your business in Canada and have annual revenues of $10 million or less.

Additional Sources of Lending for Small and Mid-Sized Loans

Below are some examples of organizations that can help finance your business, or direct you towards other sources of financing that are sensitive to your unique situation. They’re set up to help entrepreneurs belonging to certain demographic groups or geographic regions.

Futurpreneur Canada Finances and Mentors Businesses

Futurpreneur Canada is a national non-profit organization that provides financing and mentoring support to aspiring entrepreneurs between the ages of 18 to 30. Futurpreneur has helped over 12,000 entrepreneurs over two decades, and the 2019 federal budget has allocated $38 million to Futurpreneur, to use over five years.

According to Futurpreneur, they offer collateral-free loans at better interest rates than most banks. They finance up to $15,000 per business, and their partnership with the Business Development Bank of Canada (BDC) may provide additional financing of up to $30,000. That’s a total of $45,000 available to you in financing, along with an expert business mentor for up to two years, and other resources to help you plan, manage, and grow your business.

Business Development Bank of Canada (BDC): The Bank of Entrepreneurs

What is BDC?

BDC describes itself as the only Canadian bank devoted exclusively to entrepreneurs. A federal crown corporation, owned by the Government of Canada, BDC provides start-up financing of up to $100,000 to entrepreneurs in as little as 48 hours. The application is 100% online, there’s no application fee, and the business loan comes at a competitive interest rate.

Apart from start-up loans, BDC has financing solutions for every milestone of a business. These BDC loans go beyond $100,000, and help finance the purchase of a franchise or a business, purchase of technology, real estate, and equipment, and also loan you working capital.

Community Investment Funds: Micro Loans Unique To You

There’s business financing available from non-government organizations, tailored for specific communities and regions. In Alberta, you can receive a micro business loan of up to $10,000 from Momentum, which is a charitable organization. ACCESS Community Capital Fund in Ontario helps individuals with collateral or good credit history obtain micro-loans of up to $5000 to start a business, and $10,000 after paying off the first loan.  

Check out this list of non-profit and community-based organizations that offer financing or help you access financing.

Raise Money From Investors

Angel Investors  and Venture Capital Firms

Angel investors and venture capitalists are niche providers of business funding. They invest money in businesses in exchange for equity, which is a share in the company. Their goal is to get a good return on their investment, and they’ll usually pick businesses that are growing rapidly, are innovative or have a mission that aligns with their values.

What’s the difference between Angel Investors and Venture Capitalists?

While angel investors are typically wealthy and influential individuals who use their own money to fund businesses, venture capitalists are a group of professional investors who invest on behalf of their clients. Angel investors usually fund early-stage businesses, where as venture capitalists come on board when the company is generating revenue and has a stable cash flow.  

Angel Investors and venture capitalists bring new opportunities, unlock a larger network and provide valuable advice to businesses they invest in, because your success is ultimately their success.

Businesses that are generating revenue or nearing commercialization of their product or service are generally a better candidate for angel or venture capital funding instead of a business that’s at the concept-stage.

There are a number of angel investor groups across the country that support investment activity through accelerators. The National Angel Capital Organization (NACO) is one. Network with other entrepreneurs to connect with venture capitalists or visit industry conferences to spread your business story. BDC Capital is the venture capital arm of BDC that invests in Canadian entrepreneurs looking to scale their business.  

You need to prepare well to impress this class of investor to lend your business money. Be ready with an elevator pitch that talks about how your product or service benefits customers and how you compare to the competition. Angel investors and venture capitalists will also review your company’s financial statements, outstanding debts, and ownership structure.


Businesses can also raise money through crowdfunding campaigns, that are hosted on websites like Indiegogo, Kickstarter, among others.

What is crowdfunding and how does it work?

You pitch your business plan to the public, set a funding target, and impress upon them how your product or service is an improvement in its space. Crowdfunding lets you test the waters and gauge consumer interest in your product or service, and democratizes access to funds.

You seek donations or investments in return for special rewards or an ownership stake in your company. Apart from funds, crowdfunding builds you a customer base from around the globe, and creates a buzz around your business.

Raising money is a new and uncertain experience for early-stage entrepreneurs. This guide is your gateway to the vast expanse of business finance. It’s essential that you do your own research, consider the pros and cons of various options, and seek professional advice at the right time.

This article offers general information only and is not intended as legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. While the information presented is believed to be factual and current, its accuracy is not guaranteed and it should not be regarded as a complete analysis of the subjects discussed.  All expressions of opinion reflect the judgment of the author(s) as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or its affiliates.